Making a career change to a business/stock analyst from engineering?

What are some recommendations from someone over engineering and interested in making a career change to being a stock analyst? Just go a grad. diploma at FINSIA (can't remember the new org)?

Try this.

http://www.cfainstitute.org/

There probably isn't a need to do any additional finance
Engineering degrees are high regarded - just demonstrate in you resume and interviews your knowledge of finance and they will take you

Otherwise if you feel the need to obtain any sort of certification, I'd advocate a Masters

Interesting question.

I too come from a formal education as a Ginger Beer but lately find finance so much more interesting. I don't know if I could do it as a job though. There just seems to be soooo many muppets out there in the stockbroking world.

Let me know how you get on.

Maybe in a couple of years we can run our own hedge fund?

It's a difficult time for those from different fields looking to move into finance. You will be competing with applicants that have considerable experience already in the field and may even be significantly over qualified for the position they're applying for.

In general though people with a good grasp of mathematics, such as engineers, and experience in industry stand a good chance of moving to finance. As others have pointed out, it may be worth starting a qualification to support your application. CFA is a good call - there are no classes and even completing just the first level is quite well regarded.

It would pay to put further thought into what field of 'finance' you'd like to get in to and how your current skill set would be saleable. There's quite a difference between, for example, stockbrokers and buy-side analysts.

h0psing said:

What are some recommendations from someone over engineering and interested in making a career change to being a stock analyst? Just go a grad. diploma at FINSIA (can't remember the new org)?

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A stock analyst? You mean the guy who is always prepared to give a 'STRONG BUY' recommendation on a stock his employer wants to dump to the market? Or the other guy next to him who will give that same recommendation whenever everything on the market screams 'SELL - WE'LL BE IN A BEAR MARKET FOR THE NEXT 2 YEARS'?

Just stay doing engineering. Even elementary finite element analysis is much more stimulating.

PrudentInvestor said:

A stock analyst? You mean the guy who is always prepared to give a 'STRONG BUY' recommendation on a stock his employer wants to dump to the market? Or the other guy next to him who will give that same recommendation whenever everything on the market screams 'SELL - WE'LL BE IN A BEAR MARKET FOR THE NEXT 2 YEARS'?

Just stay doing engineering. Even elementary finite element analysis is much more stimulating.

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These tend to be sell side analysts. In fairness to them, they're salesman looking to sell and generate trading volumes.

This is exactly why it's important to be clear where you want to be in finance - it's a big field. Wanting a job with a bank to earn the big bucks isn't enough.

doctorj said:

These tend to be sell side analysts. In fairness to them, they're salesman looking to sell and generate trading volumes.

This is exactly why it's important to be clear where you want to be in finance - it's a big field. Wanting a job with a bank to earn the big bucks isn't enough.

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Spot on.

mazzatelli said:

There probably isn't a need to do any additional finance
Engineering degrees are high regarded - just demonstrate in you resume and interviews your knowledge of finance and they will take you

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I find this hard to believe. I think in order to work in the finance industry you would need qualifications. You shouldn't underestimate how much knowledge there is involved in working in a professional environment such as finance, engineering, law, medicine, etc. I am sorry but without a formal qualification
your not going to have the knowledge.

h0psing said:

What are some recommendations from someone over engineering and interested in making a career change to being a stock analyst? Just go a grad. diploma at FINSIA (can't remember the new org)?

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Engineering would be a good background, but if you know absolutely nothing about stocks i have no idea who would employ you, possibly Macquarie Bank or one of the large Stockbrokers would be where I'd start.

You would have to have a good manner, patter, and presentation and not be too ugly.

gg

richard99 said:

I find this hard to believe. I think in order to work in the finance industry you would need qualifications. You shouldn't underestimate how much knowledge there is involved in working in a professional environment such as finance, engineering, law, medicine, etc. I am sorry but without a formal qualification
your not going to have the knowledge.

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It's the skill set developed employers are interested in - plenty of engineer/math background people are hired into finance because of their logical thinking and problem solving skills, which usually trump a commerce grad with finance and accounting majors.

This is particularly common when it comes to trading and quant roles. I know someone who studied Liberal Arts with math and philosophy majors, who is now a market-maker. According to your logic, he shouldn't even be considered

So I'm sorry...but there is plenty of chance

The people that are successful in finance are the best at sales.

They sell themselves at the interview.

Finance roles are sales roles, even analysts.

They simply sell their analyses to their employer.

The successful ones are the ones who successfully sell the line - "it wasn't my fault". :

On a serious note....

An analytical mind is an asset, but does success in engineering translate to success in finance or economics?

Not necessarily.

From my understanding of engineering, calculations are made from set or within tolerable variables. Which are rational.

Economics (which is a behavioural science) is a study of human behaviour. Humans are emotional creatures and inherently irrational. Hence all the books on the irrationality of markets.

Maths ability is necessary, but an insight in psychology might also help.

Agree with Krusty, psych of value.

I'm an electrical eng of nearly 30y exp. Big problem engineers face as traders is that in engineering you have to be right, particularly in electrical. Needing to be right I see as dangerous in a trader where you're often going to be wrong, need to admit it and take the right action. Engineers tend to feel we can control any situation. Not possible with the markets.

I also seem to have trouble explaining my trading to fellow engineers, seems only a small portion can 'get it'.

Krusty the Klown said:

From my understanding of engineering, calculations are made from set or within tolerable variables. Which are rational.

Economics (which is a behavioural science) is a study of human behaviour. Humans are emotional creatures and inherently irrational. Hence all the books on the irrationality of markets.

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Don't you think there could be mathematical (~ rational) models for irrationality? I do, having built some myself.

Much of quantitative engineering today (structural mechanics, control systems, ...) focuses on how to tolerate uncertainty. Sure, you want your calculations to be correct, but you also want to take into account the possibility that your underlying assumptions might be wrong. Knowledge of the statistical techniques behind such analyses is no doubt benefical in finance, too: Monte Carlo methods etc.

So are you talking about probability theory and chaos theory and the like?

Krusty the Klown said:

So are you talking about probability theory and chaos theory and the like?

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Probability theory, Game theory, Stochastic Processes, Monte Carlo, Finite Differences, Stochastic Calculus, Volatility etc

PrudentInvestor said:

Don't you think there could be mathematical (~ rational) models for irrationality? I do, having built some myself.

Much of quantitative engineering today (structural mechanics, control systems, ...) focuses on how to tolerate uncertainty. Sure, you want your calculations to be correct, but you also want to take into account the possibility that your underlying assumptions might be wrong. Knowledge of the statistical techniques behind such analyses is no doubt benefical in finance, too: Monte Carlo methods etc.

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Multiple reservior management in an integrated system, particularly as it applies to a large scale hydro-electric system, immediately comes to mind as an engineering field having a lot of similarities with financial markets.

Inflows totally uncertain over the short term but reasonably predictable within a range over the long term (that's decades not months). And of course, the larger the system (or the larger the company in financial terms), the more stable it is.

Outflows across the whole system due to system load and evaporation again are very variable over the short term but reasonably predictable within a range over a 12 month period for the system as a whole. But for any individual component of the system, 12 month values are massively variable.

And of course there are always the "black swan" events that nobody can predict, other than to say that at some point something will go wrong and then you've got a crisis of sorts, the importance of which depends on what happened, how long it takes to fix and how much system yield / capacity / load was affected.

Road traffic control (SCATS etc) is another engineering field with relevance. Certainly there's a lot of similarities with road traffic / hydro and there's plenty of similarities to finanical markets there too. Difficult to predict in the short term, resaonably predictable over the long term and unforeseen happenings will create the occasional crisis.

It certainly wouldn't be the first time that someone worked out that rivers / roads and power stations / intersections have similarities in operation and then built a forex / share trading model based on either.

Smurf, are you guys saying that these models can predict human behaviour?

I've read before that the behaviour of markets is the same as the behaviour of mobs and crowds.

If so, these models could have other applications too e.g. crowd control, crime prevention, military tactics etc.

Krusty the Klown said:

Smurf, are you guys saying that these models can predict human behaviour?

I've read before that the behaviour of markets is the same as the behaviour of mobs and crowds.

If so, these models could have other applications too e.g. crowd control, crime prevention, military tactics etc.

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Both are examples of 24/7/365 real time systems that respond to external forces outside their control so as to extract the maximum benefit (traffic flow, power generation) from prevailing conditions.

Hydro Tasmania. 27 power stations, 54 major dams and a lot of smaller structures spread across 7 catchment areas in Tasmania which forms the basis of electricity generation in Tas.

It's way too complex to explain briefly, but the basic operational difficulties arise from zero margin for error since there is no surplus water - the dams don't simply fill to 100% each Winter as many assume (they haven't been over 90% since the 1970's and are unlikely to ever be full).

The real complexity arises when you realise that just two power stations are connected directly to major storages (80% of total storage), but these have just 30% of the system inflow. And 60% of total generation is from water that never goes anywhere near a long term storage.

So, in short, the objective is to keep the smaller dams (the majority of the system) never full (otherwise spill will occur if it rains - and we can't afford to lose water to spill), and never empty (otherwise the lights will go out - the whole state can't be run from just two power stations on the major storages). And it gets worse - there's no ability to transfer water between catchments - so if the small dams run dry then they are dry until it rains, and if they spill then that can't be moved to the major storages.

And then there's all the electrical and hydraulic constraints within catchments - you can't necessarily actually do what, on paper, makes sense. Canals, power stations etc all have limited capacities.

So what you've got is basically a 24/7/365 juggling game - don't run anything dry, don't have anything full, minimise outflow from the major storages over the long term, maximise generation from every drop of water.

And just to throw in some more complexity, the largest storage discharges directly into a flood-prone catchment with another power station downstream. Now, you don't want to be spilling water downstream just to generate power upstream, and you certainly don't want to be flooding Launceston as a result.

Likewise you could have storage in the upper Derwent virtually empty but a flood downstream nearer to Hobart - it's overall a very complex system.

Against that background is the difficulty of predicting the weather. One heavy downpour and that will fill a minor storage - and remember we don't want anything spilled because over the long term there is zero surplus. But it can't be empty beforehand either - otherwise we'll be in the dark. And then there's the problem that with so many components in the system, there's always something out of service for maintenance etc and unplanned breakdowns do occur.

Hence a very complex, real time response to actual conditions imposed by a far larger external force - weather.

Then add to that the variability of wind power generation (4% of generation on average, but it can reach 15% at times) plus the constantly variable price of electricity on the other side of Bass Strait (remembering that the Tas hydro system has no pumped storage - it's a one-way flow baseload system, very different to the Snowy etc).

The overall process that makes this all work is most easily described as being very similar to a 1000 times back-tested stock trading system. It's all statistics and probability that makes it work.

....

SCATS (Sydney Co-ordinated Adaptive Traffic System) is the software that co-ordinates traffic lights in Sydney and is also used in many other cities (including overseas).

In short, it has data coming in from sensors in every lane at every set of traffic lights, plus "human" data from camera observations of traffic flow.

The objective is to optimise the flow of traffic, noting that as with a hydro system, there's all sorts of network constraints that make this difficult. Eg you have two major roads coming to a junction with most traffic heading the same way at the other side of the intersection. 1 + 1 = 2, but the other side has no more capacity than the two roads feeding it...

Basically, SCATS constantly (literally every cycle of the lights) adjusts timings to optimise flow. It is an immediate response to actual conditions on the road.

With both of these systems there is some ability to predict what will happen - it will probably rain in Tasmania in July (so high system inflows) and it will probably be cold (ie high demand for electricity for heating - most homes in Tas have electric heating).

But it's not unknown to have very low inflows at that time and very high outflows - clear sky = no rain and freezing overnight temperatures. Keeping system output up high enough under those conditions isn't so simple...

Likewise it will usually be busy on the roads in Sydney at 5pm on a weekday - but you can't predict that a car will breakdown in the left lane in x street at 5:10 pm and that there will be an accident somewhere else. Hence there's a real time response to actual events.

Relevance to finance?

Consider a small time forex trader. What they must do, in practice, is respond in real time to a much larger external force over which they have no control so as to produce an outcome of profit. As with hydro / SCATS, they want as little spill / lost traffic flow as possible and to maximise the benefit from the available opportunities. But again as with hydro especially, they can't run to zero otherwise they've got a major crisis - no money left.

In short, all are about real time responses to uncontrollable external forces so as to produce a desired outcome with little or no chance of complete failure (lights go out, traffic gridlock, trader loses all their money).